Earnings Downside from Delays in Starting Large-Scale International Collaborative Clinical Trials

「In the United States, the Company had received preliminary agreement to accept orders for multiple large-scale international joint clinical trials involving the United States, Europe and Australia and was proceeding with the contract execution process. Some contracts had been completed and recorded in the order backlog, contributing to revenue, but delays in the timing of trial launches due to the closure of US government agencies and other factors meant that the decline in revenue following the completion of large-scale projects could not be offset, resulting in a significant decline in revenue and an operating loss compared with the previous fiscal year.」

「The United States was unable to offset the decline in revenue following the completion of a large-scale project by securing new projects and consequently reported an operating loss. Europe also recorded a larger operating loss, resulting in an operating loss of ¥511 million, compared with an operating loss of ¥192 million in the same period of the previous year.」

「In South Korea, revenue declined significantly year on year due to lower sales from contract changes on existing projects and delays in the progress of multiple projects. As a result, the segment also reported an operating loss.」

「In Europe, existing trials were discontinued and the launch of new projects was delayed. In addition, the European economy continued to face soaring energy prices and high inflation amid heightened geopolitical risks, including the Russia-Ukraine conflict. The high-interest-rate policies implemented in response had a negative impact on economic conditions across Europe, particularly in Germany, making it difficult for biotech ventures to raise funds, and new project wins consequently fell short of expectations.」

「In Europe, revenue declined year on year and an operating loss was recorded because existing trials were cancelled, the start of new projects was postponed, and progress on existing trials fell below expectations. In addition, the difficult funding environment for biotech ventures caused new project wins to fall below expectations.」

「In Europe, revenue declined year on year and the segment reported an operating loss due to the discontinuation of existing trials, delays in launching new projects and other factors, including slower-than-expected progress in existing trials.」

「The aforementioned large-scale trial began in the second half of July and has since progressed generally smoothly. In addition, the start of other new projects and increased workloads resulting from contract changes have kept staff utilization at a high level.」

「Although the launch of the aforementioned large-scale trial was delayed by the lengthy process of reallocating planned trial sites in Russia to countries across Europe and making other adjustments, it began in the latter half of July and has proceeded generally smoothly since then.」

「The company reported an operating loss because the temporary decline in personnel utilization caused by delays in starting large-scale international joint trials in the United States and Europe, following customers’ reviews of their clinical trial plans, among other factors. The aforementioned trials began in July, and personnel utilization is expected to improve as multiple new projects scheduled to begin from the second quarter onward are launched and additional work hours are added.」

「The order backlog as of 31 March 2021 was down 3.5% from the order backlog at the end of the fiscal year ended March 2020. However, the company was recently proceeding with contract execution for large-scale projects in Japan, Asia, the Americas and Europe for which orders had been informally secured, and the effective order backlog had reached more than ¥20 billion. The decline in the order backlog was due to a reduction following the completion of contract amendments for existing projects in Europe, after the end dates of the clinical trial periods were brought forward due to the spread of COVID-19, as well as cancellations of contracts in the United States following customers’ reviews of the priorities of their development projects, among other factors.」

「The Group’s CRO business posted lower revenue and profit because the global spread of COVID-19 made it difficult to conduct some trial activities due to restrictions on visits to medical institutions and delayed the start of trials for newly won projects, among other factors, delaying revenue recognition from collection of the order backlog.」

「In addition, pharmaceutical companies began temporarily freezing new development projects from the fourth quarter of the previous fiscal year due to the spread of COVID-19. This resulted in insufficient orders secured to contribute to revenue for the cumulative second quarter of the current consolidated fiscal year, while pharmaceutical companies continued to narrow their development pipelines after the start of the current fiscal year. Consequently, new orders remained below expectations.」

「As the global spread of COVID-19 led to lockdowns in the United States and Europe that restricted travel and other activities and brought economic activity to an almost complete halt, while Japan declared a state of emergency and requested that people refrain from nonessential and nonurgent outings, restrictions on visits to medical institutions made it difficult to conduct some trial activities and delayed the start of trials for newly won projects. As a result, the company was unable to collect its order backlog as planned, causing a timing shift in revenue recognition.」

「The company had won and was conducting multiple international joint clinical trial projects through its global contract services structure covering Japan, Asia, the Americas and Europe. However, in the fourth quarter of the current fiscal year, the global spread of COVID-19 made it difficult to conduct some trial activities due to restrictions on visits to medical institutions, and delayed the start of trials for newly won projects, resulting in a timing shift in revenue recognition. Pharmaceutical companies also temporarily froze new development projects.」

「However, in addition to a decline in the yen-converted revenue of overseas subsidiaries due to the yen’s appreciation and a gap in Japan between the completion of several large-scale projects and the start of new projects, trial progress at the French subsidiary in Europe was delayed due to demonstrations, negatively affecting revenue. In addition, orders expected to be recognized as revenue in Japan and Europe during the third quarter of the current consolidated fiscal year did not materialize as initially anticipated. As a result, revenue for the cumulative third quarter of the current consolidated fiscal year was ¥8,205 million, down 4.3% from the same quarter of the previous year.」

「However, in addition to a decline in the yen-converted revenue of overseas subsidiaries due to the yen’s appreciation, several large-scale projects in Japan were completed between the previous and current fiscal years, creating a gap before new projects began. As a result, revenue declined year on year to ¥5,389 million, down 4.0% from the same quarter of the previous year.」

「In Japan, one project whose contract had been provisionally secured at the beginning of the fiscal year was cancelled after the start of development was delayed, while several projects scheduled to begin in the third quarter were postponed to the next fiscal year following revisions to pharmaceutical companies' development plans. Although the Company pursued new projects that had not been anticipated at the beginning of the fiscal year and secured several contracts, this was insufficient to offset the impact, and both revenue and profit fell below forecasts.」

「Because large-scale international joint clinical trials scheduled to begin in Japan, Asia and Europe were postponed, among other factors, the company pursued projects that had not been anticipated at the beginning of the fiscal year and won orders for Japan- and Europe-based international joint clinical trials led by Japan. However, it was unable to make up for the delays described above, and revenue growth fell short of initial expectations.」

「Meanwhile, because large-scale international joint clinical trials scheduled to begin in Japan, Asia and Europe were postponed, among other factors, the company pursued projects that had not been anticipated at the beginning of the fiscal year and won orders for Japan- and Europe-based international joint clinical trials led by Japan. However, it was unable to make up for the delays described above, and revenue growth fell short of initial expectations.」

「Meanwhile, in terms of profit, revenue growth fell short of the initial assumptions because the start of large-scale international joint clinical trials scheduled to begin in Japan, Asia and Europe was delayed, among other factors. As a result, the company was unable to fully absorb higher personnel expenses from upfront investment in human resources based on its order plan and costs associated with relocating the Tokyo office, leading to lower profit.」